Consumption (C)

• What is consumption?

  The spending by consumers on goods and services, determined by disposable income
• What is disposable income?

  The income available from employment, after direct taxes have been deducted
• What is the average propensity to consume?

  The proportion of disposable income that is spent on consumer goods and services
• What is the avearge propensity to save?

  The proportion of disposable income that is saved
• What is the formula to calculate the average propensity to consume?

  Consumption/disposable income x 100
• How do interest rates affect consumption?

  If interest rates rise, then the cost of borrowing to consumers increases, though it also means more money can be earned by leaving it in the bank
• How does consumer confidence affect consumption?

  If householders feel they have a secure income, they are more likely to buy expensive products
• How do wealth effects affect consumption?

  An increase in house prices means that owners feel wealthier, and this will encourage people to spend more